San Diego & Riverside Counties| Real Estate Blog

Fewer McMansions on the Horizon

Builders Have Little Incentive to Create More McMansions and Hardly Anyone is Buying. There are Deals Out There, But You Better Act Fast.

• If you're looking to buy a brand-new McMansion in the 'burbs, you'd better act fast. With home prices this low there's not much incentive for builders to start new houses. And inventories are getting razor-thin: Economists and analysts at the National Association of Home Builders fall construction conference in Washington, D.C. on Wednesday pointed out that the current 7.3-month supply of new homes is the lowest it's been since 1992.

Moreover, most of the summer's pickup in home sales and starts, which has since abated, could be attributed to the $8,000 first-time home buyer's tax credit. With that credit slated to end on Nov. 30—and with continuing problems securing money to build—builders have little incentive to ramp up their production of new homes.

Many places will take years to rebound. Rockville, Md. builder Robert Mitchell says these days he'll only build a home when he has contract in hand, because his lenders won't advance money for speculative building. "We sold off our standing inventory," he says.

Before the drought: Construction workers build a new home in August 2006 at a new sub-division in Sugar Grove, Ill., a suburb outside of Chicago.

Normally, short supply means higher prices. But consumers have been so battered by job losses and falling home equity, many are unwilling to commit to buying. Mark Zandi, chief economist of Moody's Economy.com, notes that "homes are as affordable as they've ever been," based on household income. However, he says that continuing layoffs and foreclosures will continue to depress prices, which have fallen 32% since their 2006 peak, according to S&P/Case-Shiller's composite 10-city index. He predicts that prices will fall another 5% to 10% before stabilizing in the middle of next year.

When the market does start to pick up, the NAHB sees that happening two years from now, the landscape will be changed, literally. After a long run-up in median new home size, peaking at 2,309 square feet in 2007,home sizes shrank to 2,091 square feet in 2009. "It's the largest decline ever seen," said NAHB's chief economist David Crowe. Since first-time buyers and their parents, the empty-nesters, will be the dominant demographic groups over the next decade, builders will cater to those groups more modest needs. Already, big builders like Toll Brothers have introduced models that look more like cozy carriage homes and four-squares than their usual English manor-style homes.

 

In the meantime, the next couple of years are going to be strange for those who want to buy new and have the means to do it. Sure, interest rates are likely to remain favorable (in the 5% to 6% range, according to Mortgage Bankers Association chief economist Jay Brinkmann). But you may have to settle for an already-built home in a builder's inventory if you want a bargain. Demand is so weak and prices so low, that for many builders, creating a new home to your specifications just isn't worth the effort. The NAHB's Mr. Crowe noted that 56% of builders the trade group surveyed recently reported that appraisals for their homes fell below the cost of building.

 

If you would like to get loan information from recommended banks, or get started and view all homes, condos, investment properties, pre-foreclosures, bank owned foreclosures (REO's) or thinking of selling your property, please visit our website at: County Properties San Diego or County Properties Riverside

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Seeking real estate bargains in Southern CA? Try looking at the high end luxury homes

Buyers hoping to purchase deeply discounted homes may want to consider purchasing homes in the high end—especially those priced $2 million or more.  In some cases, buyers may be able to command even lower prices on these homes, as financing continues to be a challenge for buyers of luxury homes.

·   While data from the Federal Housing Finance Agency (FHFA) showed that average home prices rose 0.3 percent nationwide between June and July, including a 1.6 percent increase on the west coast, the data only relate to homes purchased with conforming loans guaranteed by the FHFA.  These loans are mortgages of up to $417,000 or up to $713,000 in the country’s most expensive regions.  The outlook for homes priced above that amount remains bleak.

 

·   In many areas across the country there is a new level of value being established.  According to one broker, homes that used to sell for $8 million now are selling for $6 million, while homes previously priced in the $10 millions are selling for $8 million.  The price adjustment in the high end appears to be about 20- to 30 percent lower.

 

·   A recent survey by Trulia.com showed that sellers listing homes for more than $2 million have reduced their asking prices by a total of $7 billion, with an average price reduction of 14 percent.

 

·   Chip Case, economics professor at Wellesley College and coauthor of the Case-Shiller index, says that some of the markets finally may be catching up to the wider housing market downturn.  “That level was more in the hold-out category,” he says.  “Up until recently, the foreclosures weren’t hitting that level.  But they are now. There’s no question about that.  You’re seeing some contagion from the prime level to the luxury end.”

 

·   Sooner or later, even high-end homeowners need to sell.  And, when they get tired of waiting, they reduce their asking prices.  Factoring in taxes, upkeep and the opportunity cost of keeping money in a non-performing asset, an empty luxury home may be costing owners a lot just by sitting there, giving them a powerful incentive to make a deal.

 

If you would like to get loan (including jumbo loans) information from recommended banks, or get started and view all types of luxury homes, condos, investment properties, pre-foreclosures, bank owned foreclosures (REO's) or thinking of selling your property, please visit List #4 Luxury Homes on our website at:

County Properties San Diego or County Properties Riverside